FT: MMF Mgrs Welcome Rising Rates
Yesterday's Financial Times published, "Money market funds applaud rising rates." It says, "Rising yields on Treasury bills and other short-term debt securities mean good news for savers and money market funds as the era of near-zero returns draws to a close. A widely expected shift in policy by the US Federal Reserve on Wednesday will formally end seven years of ultra-low returns for investors who maintain holdings of cash or own money market funds. Prolonged low interest rates have stunted returns for money market mutual funds that invest in assets with a maturity of 12 months or less. The yield on Vanguard's prime money market fund, one of the largest available, doubled from 8 basis points in October to 16bp on Monday. "It will be great news for money market funds," said Debbie Cunningham, chief investment officer at Federated Investors. "It means the return from our portfolio composition back to the end shareholders is improving and that hasn't happened since 2008." The FT continues, "Short-term market rates are expected to continue rising once the central bank shifts its overnight Fed funds rate higher, with the market anticipating a new corridor set between 0.25 percent and 0.5 percent. Economists polled by the Financial Times this week expect the Fed will undertake two to four additional rate increases next year. "Money market funds are absolutely ecstatic. For the first time in a decade they are going to be in a rate-rising environment," said Joseph Abate, a rates strategist at Barclays. To cope with years of low returns, a number of money market funds have waived fees for investors.... The weighted average maturity of prime institutional money market funds stood at 28 days last week from 32 days at the beginning of October, according to Crane data."
